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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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 Posted: Tue Apr 06, 2010 1:27 pm GMT Post subject: |
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| GenXer wrote: | | I did call the bluff of those who said they were going to time the bottom, which apparently has just passed according to what the Case Schiller index is saying. |
How do you get that the bottom has just passed based on the S&P/Case-Shiller Index?
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GenXer
Joined: 20 Feb 2009
Posts: 703
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Tue Apr 06, 2010 1:47 pm GMT Post subject: |
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| Quote: | | Buy in winter and you will pay less. |
An index of prices does not represent local prices, unfortunately. While this may be true, I don't believe it is so simple. The inventory may be lower, and what's available may be sold for less, but not MUCH less as to warrant being a bargain. You'd have to produce some evidence of this effect first. We know prices are seasonal, but its not 25% difference - I'd be surprised if its significantly more than several percent. And again, this is in aggregate - also not a very good predictor, so again, you can't predict WHERE the prices will be a bit less - they can also be a bit more elsewhere, so that in aggregate prices are a bit less. You see my point?
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Tue Apr 06, 2010 1:50 pm GMT Post subject: |
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| admin wrote: | | GenXer wrote: | | I did call the bluff of those who said they were going to time the bottom, which apparently has just passed according to what the Case Schiller index is saying. |
How do you get that the bottom has just passed based on the S&P/Case-Shiller Index?
- admin |
This may or may not be a bottom. But that's part of my point. The talking heads are beginning to say that we've hit bottom, but one is nowhere to be found. Going by charts, it's impossible to DECLARE a bottom except way after the fact. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Tue Apr 06, 2010 2:11 pm GMT Post subject: |
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| GenXer wrote: | | I see this from your charts, |
That's funny - I don't. I agree with "Renting in Mass" - you're knocking down a straw man. You are presupposing a lot of specifics about exactly how others will "time" the market, and I don't think those specifics are representative of most (any?) people on this board. In particular, evaluating market fundamentals to make a judgment on how overpriced/underpriced housing is and opting out of an overpriced market is not equivalent to trying to buy in the exact month when prices are at their absolute low point (which appears to be your litmus test).
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Wed Apr 07, 2010 8:21 pm GMT Post subject: |
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| GenXer wrote: | | Quote: | | Buy in winter and you will pay less. |
An index of prices does not represent local prices, unfortunately. While this may be true, I don't believe it is so simple. The inventory may be lower, and what's available may be sold for less, but not MUCH less as to warrant being a bargain. You'd have to produce some evidence of this effect first. We know prices are seasonal, but its not 25% difference - I'd be surprised if its significantly more than several percent. And again, this is in aggregate - also not a very good predictor, so again, you can't predict WHERE the prices will be a bit less - they can also be a bit more elsewhere, so that in aggregate prices are a bit less. You see my point?
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You are struggling because you believe that you can't time efficient markets. I posit that the market is actually efficient here. People don't want to move in the winter so the prices in aggregate are lower. Time, however, is the misleading indicator. Rather, the factor is the weather. If the weather suddenly changed so that summer and winter were reversed, then you would likely find lower prices in summer. You can time the market effectively based on factors like these but you can't time the market based on non-causative factors like technical indicators.
You could, for example, predict that an increase in mortgage rates would result in a drop in prices. You can't know whether that will be even a local minima much less a global one. For that matter, you can't even accurately predict whether mortgage rates will rise. I think you can accurately predict that winter will be cooler than summer and for that reason people will wait until summer. You can't predict what other factors will affect people's decisions to buy or how much they are willing to pay. You can, however, time the expectation, as all other things being equal, prices will be lower in winter than summer. |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Thu Apr 08, 2010 11:21 am GMT Post subject: |
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Monetizing any type of perceived trend is not something that can be done consistently, and this is my argument. Therefore, I wouldn't do it. Winter inventory is much lower, however, thus you see much higher volatility in prices, leading some to believe that prices go down. Actually, prices for a small number of desperate people who are selling in the winter may go down, true. But you may not find much in the winter. Or you may. Its not a rule. In aggregate, it can be, but not for any specific local area. Be careful not to be misled by misinterpreting statistics - there is an entire industry built on such misinterpretations. Look, up the January effect in stocks. It is ephemeral and doesn't exist, yet some people swear by it. Correlation over a small number of data points means nothing when you are dealing with fat-tailed statistics.
As far as value, it is relative, and hence does not exist. The concept of overpriced/underpriced depends on what you are comaring to. If it is year to year, it is different from 5 years ago, or 10 years ago, or even 20 years ago. Somebody who has enough money could care less whether the price of this house is 2x what 'historical norm' is. Real estate price variations are volatile, so the price may or may not return to some norm or other, but the 'norm' changes based on how LONG a time series you take.
My argument is that by the time the 'fundamentals' are clear, the chance to buy at the so-called bottom has passed. As usual, bottom is different for every market. In aggregate, you may have 'a' bottom, but its meaningless. And I argue that nobody has the ability to time any type of real estate market, except after the fact. Or by pure luck.
Anybody who can time ANY market accurately and consistently based on any measure they choose can make a LOT of money, and so far, we don't know of anybody who can do so consistently. And especially not buying a single house. Timing includes being able to monetize the perceived 'value'. I'd also argue that in a soft market it may be possible to get a better price, whether is winter or summer, and that big market moves dwarf any type of seasonal effects. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Thu Apr 08, 2010 2:35 pm GMT Post subject: |
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| GenXer wrote: |
Anybody who can time ANY market accurately and consistently based on any measure they choose can make a LOT of money, and so far, we don't know of anybody who can do so consistently. |
Warren Buffet? I know his record could be a result of randomness, but when he would have to live and invest for hundreds of thousands of year to prove otherwise, I think the framework is inadequate to distinguish between luck and skill.
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Thu Apr 08, 2010 5:31 pm GMT Post subject: |
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Actually, you continue to make my point for me. It is 100% true that there is no way to distinguish luck from skill, specifically when dealing with exchange/index prices. This is exactly what I'm saying. Those people who think they have skill may not have any. I don't deny that there is some level of skill involved, but when you pick 10,000 people with skill and only a handful survives longer than 20 years (Buffet is one of this handful), I'd much rather NOT assume skill here. Of course there is the '90% of drivers are above average' mentality at work here, but it is up to the people themselves to realize that they need to be a bit more humble with their perceived skills to time markets.
When your random process is as volatile as what we are seeing with real estate, stock market and commodity prices, all bets are off, quite literally, and anybody who insists otherwise is simply gambling. Of course, those who buy houses they can truly afford will not be affected by real estate prices - if prices are too high they simply will not buy, period, just like what we are seeing happening. If the prices fall to within 2x to 3x income, maybe some will buy. No market timing required here, and no fundamentals of any kind except those that are your own. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Thu Apr 08, 2010 6:07 pm GMT Post subject: |
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| GenXer wrote: | | No market timing required here, and no fundamentals of any kind except those that are your own. |
If I had followed that strategy, I would have bought at the height of the bubble. I have no doubt that I made the right choice with that bit of timing.
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Thu Apr 08, 2010 7:28 pm GMT Post subject: |
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| GenXer wrote: | Actually, you continue to make my point for me. It is 100% true that there is no way to distinguish luck from skill, specifically when dealing with exchange/index prices. This is exactly what I'm saying. Those people who think they have skill may not have any. I don't deny that there is some level of skill involved, but when you pick 10,000 people with skill and only a handful survives longer than 20 years (Buffet is one of this handful), I'd much rather NOT assume skill here. Of course there is the '90% of drivers are above average' mentality at work here, but it is up to the people themselves to realize that they need to be a bit more humble with their perceived skills to time markets.
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Buffet did not make his money buying and selling houses. Houses are significantly less liquid than stocks, not unique (every one is different), and the costs substantially higher for professional and repeat home buyers. The result is that the market is a lot less efficient, which makes timing much easier.
Also, I disagree about there being a handful of people who can time. There's more than a handful there's just only a handful who can consistently perform well. Paulson didn't make loads of money off the real estate crash by luck - he positioned himself there. Opportunities like that just don't come around every year and there's very few people who can repeatedly find opportunities. |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Fri Apr 09, 2010 12:49 pm GMT Post subject: |
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| admin wrote: | | GenXer wrote: | | No market timing required here, and no fundamentals of any kind except those that are your own. |
If I had followed that strategy, I would have bought at the height of the bubble. I have no doubt that I made the right choice with that bit of timing.
- admin |
Let me put it this way. When you have absolutely NOTHING to lose by timing, I'm all for it. What's the worst that can happen? You will keep renting. And my argument that renting is always better than buying moneywise, on a risk adjusted basis, so I can't argue with you! If you could afford it at the height of the bubble, you'll be able to afford it whenever, so it never hurts, given that I also think that prices will come down, and putting a bet on that when you are not LOSING money is a win-win. I think we'll end up buying with mostly cash anyway, so I'm also following my own advice. This is obviously not true for those who already bought and are trying to sell. They find out the hard way that timing only works when you have nothing to lose by NOT buying or not selling.
On the other hand, there are other timing decisions people make that end up wrong. I think that the timing is not as much a problem in many cases as lack of finances to back up their purchase. That is, using the most conservative criteria, not the 'liberal' MA ones that keep being tossed out as being good enough because MA has high prices. |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Fri Apr 09, 2010 1:10 pm GMT Post subject: |
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| balor123 wrote: | | GenXer wrote: | Actually, you continue to make my point for me. It is 100% true that there is no way to distinguish luck from skill, specifically when dealing with exchange/index prices. This is exactly what I'm saying. Those people who think they have skill may not have any. I don't deny that there is some level of skill involved, but when you pick 10,000 people with skill and only a handful survives longer than 20 years (Buffet is one of this handful), I'd much rather NOT assume skill here. Of course there is the '90% of drivers are above average' mentality at work here, but it is up to the people themselves to realize that they need to be a bit more humble with their perceived skills to time markets.
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Buffet did not make his money buying and selling houses. Houses are significantly less liquid than stocks, not unique (every one is different), and the costs substantially higher for professional and repeat home buyers. The result is that the market is a lot less efficient, which makes timing much easier.
Also, I disagree about there being a handful of people who can time. There's more than a handful there's just only a handful who can consistently perform well. Paulson didn't make loads of money off the real estate crash by luck - he positioned himself there. Opportunities like that just don't come around every year and there's very few people who can repeatedly find opportunities. |
The proof is in the pudding - look around and see if timing is actually easier in real estate or if some people got lucky, and when the game of musical chairs ended, there weren't enough chairs left. Its a faulty perception. Of course if you can afford to wait for your deal patienty, you will find the one you want eventually, if you are not distracted by an anxious spouse or a push to buy at any cost into an immune school district. In the meanwhile, you are actually WINNING by not buying so the opportunity cost is actually negative. Hard to beat that. With stocks its the opposite - the longer you are out of the market, the more likely you are to miss big gains.
It is true that if you have limitless resources and inside information you will have more choices. The problem is, very few people do. How many times did Trump go bankrupt? Yes, if you keep trying with borrowed money, you will succeed. This does not work for a working stiff. The resources are lacking, and you need a lot better financial base to pull this off than is available to most people. Besides, the losses can be huge and so is the risk. This is why real estate is best left to those who already have enough money to retire, and are simply expanding their portfolio. Most people who think they are Trump end up bankrupt.
As far as consistently timing anything, there aren't more than a handful of such people and they are quite lucky sometimes and sometiems not. Buffet recently lost billions in derivatives trades he botched. Not something an average Joe can pull off. Even people who are 'consistent' make big mistakes, and sometimes these mistakes cost them a fortune. Like I said before - you can't prove its skill because it CAN NOT be replicated by others. Hence, its luck in my book, but I'd rather not assume skill when luck works just fine. Finance is not one area where you can take skill for granted. |
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Boston ITer
Joined: 11 Jan 2010
Posts: 269
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| Posted: Fri Apr 09, 2010 3:44 pm GMT Post subject: |
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| Quote: | | Buffet recently lost billions in derivatives trades he botched. |
It's interesting but Buffet also lost on PM/Silver in the late 90s and on Dollar futures in '04.
His best is always when he gets into a beleaguered company before the management turns it around. That's his bread and butter, albeit for non-technology companies. |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Fri Apr 09, 2010 4:15 pm GMT Post subject: |
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| admin wrote: | | GenXer wrote: |
Anybody who can time ANY market accurately and consistently based on any measure they choose can make a LOT of money, and so far, we don't know of anybody who can do so consistently. |
Warren Buffet? I know his record could be a result of randomness, but when he would have to live and invest for hundreds of thousands of year to prove otherwise, I think the framework is inadequate to distinguish between luck and skill.
- admin |
Actually I think Buffet always insists that he does not time the market and
has no idea what stocks will do over the short to medium term.
I think this points to a useful distinction. There is a difference between
trying to "time" the market in the sense of having an
expectation about a trend (or its reversal) over a particular time frame,
and merely observing whether prices are significantly above or below
historical trends.
Buffet disavows the former but consistently does the latter. I think its
hard to argue against doing the latter, especially given the recent history
of bubbles in the US and global economy. Of course this applies only
when the prices are significantly different from the historical average.
Actually I'd go slightly further: given all our recent experience of bubbles
we know the order of magnitude of the time periods over which they tend
to play out, so even timing over the medium term is not impossible.
I think a good example of someone who does seem able to time bubbles
is Soros. He has basically said that he will buy into an inflating bubble *because* he knows it is a bubble.
Granted I'm not sure this finer form of timing has much applicability to someone thinking about buying a house, but looking at fundamentals
is surely useful. |
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